Neil Hughes | Director | RSM | mail me |
Further to the fiscal package as outlined by President Cyril Ramaphosa in his speech on the Escalation of Measures to Combat COVID-19, the Minister of Finance has announced on 29 March 2020 certain exceptional tax measures to be implemented.
These measures are over and above the tax proposals from the 2020 Budget Speech, and are required due to the National State of Disaster related to significant and potentially lasting negative effects on the economy from the spread of the COVID-19 virus.
The following interventions are intended to assist with job retention and to assist businesses that may be experiencing significant distress.
ETI age eligibility criteria and amount claimable
- Expansion of the employment tax incentive (ETI) age eligibility criteria and amount claimable.
- The introduction of a tax subsidy to employers of up to R500 per month for the next four months for those private sector employees earning below R6,500 under the Employment Tax Incentive.
This will help over 4 million workers.
Deferral of the payment of employees’ tax liability
- Deferral of the payment of employees’ tax liability for tax compliant small to medium sized businesses.
- The South African Revenue Service (SARS) is to accelerate the payment of ETI reimbursements from twice a year to monthly to get cash into the hands of compliant employers as soon as possible.
Deferral of the payment of provisional tax liability
- Deferral of the payment of provisional tax liability for tax compliant small to medium sized businesses.
- Tax compliant businesses with a turnover of R50 million or less will be allowed to delay 20% of their employees’ tax liabilities over the next four months and a portion of their provisional corporate income tax payments without penalties or interest over the next six months.
This intervention is expected to assist 75,000 small and medium term enterprises.
Further insight into the application of the new measures
The following details contain further insight into the application of the new measures being introduced, as set out in the draft explanatory note:
Expansion of ETI age eligibility criteria and amount claimable
The current limitations on the ETI are that it only applies to employees between the ages of 18 and 29 who earn remuneration of less than R6,500. The maximum ETI claimable per employee is limited to R1,000 in the first year of employment, and R500 in the second year.
Small and medium businesses are extremely vulnerable to the potential impacts of a large scale disruption of work related to the virus, and are at higher risk of shedding jobs in these trying times.
The expansion of the ETI relief is intended to assist employers to retain staff, thus reducing the risk of low income earners losing their employment as a result of the outbreak.
The expansion of the ETI programme will be for a limited period of four months, beginning 1 April 2020 and ending on 31 July 2020.
During this period, the amount of ETI claimable for employees eligible under the current ETI Act will be increased by R500 per month, so the maximum amount claimable rises from R1,000 to R1,500 per month in the first qualifying twelve months, and from R500 to R1,000 per month in the second qualifying 12 months.
In addition, employers will be entitled to claim an amount of R500 per month during this four month period for employees from the ages of:
- 18 to 29 who are no longer eligible for the ETI as the employer has claimed ETI in respect of those employees for 24 months; and
- 30 to 65 who are not eligible for the ETI due to their age
Furthermore, there will be an acceleration of the payment of ETI reimbursements from twice a year to monthly as a means of getting cash into the hands of compliant employers as soon as possible.
These measures will only apply to employers that were registered with SARS at 1 March 2020, and the compliance requirements for employers under sections 8 and 10(4) of the ETI will continue to apply.
Deferral of the payment of employees’ tax liability for tax compliant small to medium sized businesses
In acknowledgement of the potential cash flow burdens that may be suffered by small to medium sized businesses over the period of the outbreak.
The following relief is proposed over the period from 1 April 2020 until 31 July 2020:
- Deferral of payment of 20 per cent of the PAYE liability, without SARS imposing administrative penalties and interest for the late payment thereof.
- The deferred PAYE liability must be paid to SARS in equal instalments over the six month period commencing on 1 August 2020, i.e. the first payment must be made on 7 September 2020.
For the purposes of this relief, a small or medium sized business is defined as any business with an annual turnover of not exceeding R50 million.
It has been noted that interest and penalties will apply if the employer has understated the PAYE liability in any of the four months.
Deferral of the payment of provisional tax liability for tax compliant small to medium sized businesses
Small to medium sized businesses play an important role in stimulating economic activity, job creation, poverty alleviation as well as the general improvement of living standards.
In order to assist those tax compliant businesses over the period of disruption related to the virus, as well as to alleviate cash flow burdens, special measures are proposed to apply over a period of 12 months beginning 1 April 2020 until 31 March 2021 as follows:
- Deferral of a portion of the payment of the first and second provisional tax liability to SARS, without SARS imposing administrative penalties and interest for the late payment of the deferred amount;
- The first provisional tax payment due from 1 April 2020 to 30 September 2020 will be based on 15 percent of the estimated total tax liability, while the second provisional tax payment from 1 April 2020 to 31 March 2021 will be based on 65 percent of the estimated total tax liability;
- Provisional taxpayers with deferred payments will be required to pay the full tax liability when making the third provisional tax payment in order to avoid interest charges.
A small or medium business is defined as any company conducting a trade with an annual turnover not exceeding R50 million.
Eligibility
The eligibility criteria for individuals that conduct a business in their personal capacity has yet to be finalised, however the explanatory note mentions a possibility that they will be eligible if their turnover is less than R5 million and no more than 10 per cent of their turnover is derived from interest, dividends, foreign dividends, rental from letting fixed property and any remuneration received from an employer.
It is noted that interest and penalties will apply if, on assessment, it is identified that the taxpayer did not qualify for relief under the proposed amendments.
These special measures will be tabled in bills to be approved by Parliament when it re-convenes later in the year, with retrospective enactment.